Rather Than Counting the Entire Inventory at Year-End, a Company

question 39

Multiple Choice

Rather than counting the entire inventory at year-end, a company may make periodic, or cycle counts, of selected inventory items at various times during the year. Which of the following is necessary if the auditor plans to observe inventories at interim dates?

• A) Complete recounts by independent teams are performed.
• B) Perpetual inventory records are maintained.
• C) Unit cost records are integrated with production accounting records.
• D) Inventory balances are rarely at low levels.

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Definitions:

Variable Factory Overhead Controllable Variance

The difference between the actual variable overhead costs incurred and the standard variable overhead expenses expected, which can be controlled or influenced by management.

Standard Factory Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual units of production, based on a certain base such as labor hours or machine hours.

Direct Labor Hour

A measure of the amount of time an employee spends producing goods or services, directly associated with the product's cost.

Normal Capacity

Represents the average production level expected over a specific period under normal operating conditions.